Monday, October 12, 2009

Energy Crisis Postponed: New Gas To The Rescue; U.S. May Return to Near Energy Self-Sufficiency?

Engineers have performed their magic once again. The world is not going to run short of energy as soon as feared. Tony Hayward, BP's chief executive, said proven natural gas reserves around the world have risen to 1.2 trillion barrels of oil equivalent, enough for 60 years' supply – and rising fast.

"There has been a revolution in the gas fields of North America. Reserve estimates are rising sharply as technology unlocks unconventional resources," he said. This is almost unknown to the public.

As for the U.S., we may soon be looking at an era when gas, wind and solar power, combined with a smarter grid and a switch to electric cars returns the country to near energy self-sufficiency.

~Ambrose Evans-Pritchard in the U.K. TelegraphMP: The chart above shows monthly U.S. natural gas imports back to January 1985 and through July 2009 (EIA data here). Imports in May of this year (258,033 MMcfs) were at a level last seen almost 11 years ago, in November 1998 (see bottom red line in graph). On a 12-month moving average basis (to smooth out the monthly variations), natural gas imports have fallen this summer to the same level as January 2001, almost nine year ago (see top red line in graph).

HT: R. Adams

Update: See related NY Times article "New Way to Tap Gas May Expand Global Supplies":Gas analysts have made a wide array of estimates for how much shale gas could be tapped globally. Even the most conservative estimates are enormous, projecting at least a 20% increase in the world’s known reserves of natural gas.

One recent study by IHS Cambridge Energy Research Associates, a consulting group, calculated that the recoverable shale gas outside of North America could turn out to be equivalent to 211 years’ worth of natural gas consumption in the United States at the present level of demand, and maybe as much as 690 years. The low figure would represent a 50% increase in the world’s known gas reserves, and the high figure, a 160% increase.

The projections suggest that the new method of producing gas “is the biggest energy innovation of the decade,” said Daniel Yergin, chairman of the Cambridge consulting group. “And the amazing thing is there was no grand opening ceremony for it. It just snuck up.” HT: Colin, who wrote in a comment on this post: It's further evidence of the genius of the free market and should warrant increased skepticism of centrally planned efforts to move the US to alternative energy sources. Guided by the price mechanism, it is the market, not politicians, that should be charting our future direction in energy.

33 Comments:

It's further evidence of the genius of the free market and should warrant increased skepticism of centrally planned efforts to move to the US to alternative energy sources. Guided by the price mechanism it is the market, not politicians, that should be charting our future direction in energy.

renewables are, in fact, subsidized MUCH more heavily that oil and gas on a per watt basis.

oils and gas are much bigger, so in absolute dollars, sure, they get more, but if you removed all their subsidies, they'd still be highly competitive. take away the subsidies from wind and solar and they produce power at more than 400% of the going grid rates.

mandating a move to them or subsidizing them is a massive dead weight loss to the economy.

the answer is not to subsidize any any energy (or private industry) at all. ever notice how our industries that get no subsidies tend to be the most competitive and those that get large ones are not?

subsidizing one industry so it can compete with another subsidized industry is just straight up insane.

and i would echo josh's comment on the financial market failures. they were caused almost entirely by government interference with free markets. the CRA, freddy, fannie, and preposterously loose fed policy were the drivers. require several trillion dollars in stated income loans to people who can't afford them, attach an assumed government guarantee to the securitized results through freddy and fannie, keep rates insanely low to supercharge the whole thing while denying the existence of bubbles, and wow have you got a mess.

the banks (like citibank) that tried to resist this were sued into compliance. (by our sitting president when he was a lawyer).

if that's not government interference in a market, i'd hate to see what is...

By 'government interference' are you talking about de-regulation? Because it was de-regulation ( CDOs with no capital reserves backing them, for example ) which is one of the biggest reasons why we are where we are today. You compare the countries whose banking sectors wound up relatively unscathed (Austrailia, Canada, and Spain) and the primary reason is a conservative regulatory environment.

Also, oil & gas is competative today, but it wasn't always that way. They were heavily supported by government, as were the railroads, mining, etc.

The guy who discovered how to commercialize shale gas deserves a Nobel Prize.We now have gas up our rear ends for generations--and you can run cars on CNG, or make methanol from it, and run cars on that (Indy 500 cars used to be methanol; now ethanol).Even worse for the oil boys--lithium batteries are improving steadily. The industry buzz is that batteries improve by eight percent a year---how long until battery cars make sense?Never bet against a well-capitalized free market--unless it is sucked down by military parasites and subsidized enfeebled rural economies.

Sometime around 2025 I will hop in my NG car and drive down to the 7-11 for a fill up. I'll buy the car from Detroit in the new gov sponsored program with the $15000 tax credit for "CASH FOR GAS". The tax credit will be included in Stimulus package 23 that will provide earmarks of 2 trillion for ground water restoration and hazard insurance for any homes or businesses near well heads. Explosions will be invested due to defective pipe imported from China since no American manufacturers will exist.

I'm all for free markets, but you don't think the traditional energy market receives large subsidies? In fact, they do, in multiples much larger than renewables?

The subsidy amounts should be compared relative to the size of each respective industry.

The US consumes 20,680,000 barrels of oil per day. At $60 per barrel that's about a $450 billion industry -- and we're not even including coal or natural gas. Subsidies are a relative pittance, and are much more crucial to alternative energy sources than conventional ones.

But don't take that as a defense of subsidies. I believe all should be abolished and the chips should fall where they may.

Will the new natural gas resources increase the value of MLPs which own the pipelines that transport natural gas (they do not own the gas which may fall in price due to over abundance)? Answer: If more natural gas is extracted it will have to be transported through pipelines. The transport fees will be paid to MLPs(Master Limited Partnerships). I am considering investing in them because theysupposedly provide steady dividendsranging from 5%-9% a year and their units(shares)can appreciate in valueWhat would you and your readers recommend? How does one determine which MLS is least risky withwith respect to the financial strength of the company,the structural integrity of the pipelines themselves, and with respect to the geographic and climatic conditions in which the pipelines are situated.Which MLSsare best positioned to take advantage of these new natural gas resources?

Free Market. That's always the same line. Whatever happened to recognizing geniuses and inventors? Most don't give a rip about money. They do it because they have to. It's their nature.

Horizontal drilling is only a little over a year old, and already a game-changer. Meet the man....Aug. 18, 2008...Frank J. Schuh of Plano, Texas, has developed a method for horizontal drilling.

According to the U.S. Patent & Trademark Office: "A method and apparatus for recovering viscous hydrocarbons from a subsurface reservoir holding the same using an essentially horizontal well bore having a production inlet and containing steam injection tubing that carries a plurality of jet nozzles oriented to emit steam along said injection tubing towards said production inlet."

The inventor was issued U.S. Patent No. 7,404,439 on Aug. 12.The patent has been assigned to Frank J. Schuh Inc., Plano.

BxCapricorn: "Horizontal drilling is only a little over a year old..."

Horizontal drilling has a long history, the first patent for horizontal drilling (Patent Number 459,152) dates back to September 8, 1891 and was issued to John S. Campbell. Here is a PDF of a report on horizontal drilling published by the Department of Energy in 1993.

Free Market. That's always the same line. Whatever happened to recognizing geniuses and inventors? Most don't give a rip about money. They do it because they have to. It's their nature.

Then why does the US produce a disproportionate amount of the world's inventions? Are we simply blessed with an unusually high percentage of geniuses and inventors? Or maybe, just maybe, it is the system in which they operate in...

> As for the U.S., we may soon be looking at an era when gas, wind and solar power, combined with a smarter grid and a switch to electric cars returns the country to near energy self-sufficiency.

They better not be planning on solar or wind to get them to this mythical "self-sufficiency".

> Using blimps to deliver heavy payloads to remote northern sites has oft been touted as having cost and environmental benefits over traditional means of transportation. (there's a bit more)

Uhhhh, juandos, I'll believe it when I see it's been operating in an unsubsidized fashion for 10 years and shows any sign of earning money.

Colder air is denser, and creates notable problems with things like dirigibles and blimps because the energy absorption capacity of air is generally higher than that of helium. That is to say, blimps get one hell of a lot less lift when it's cold out. This is one of a half-dozen or so problems with lighter than air designs which, despite the vast engineering advances of the last 70 years, have mostly prevented any resurgence in LTA aircraft usage anywhere in the world, since they were last experimented with and found wanting (look up the Navy's history with them -- and grasp that the Navy abandoned them despite not needing to "make a profit" with them)

LTA is a stupid libtard fantasy. It'll happen when we get anti-gravity, not one year before.

The decision to use Stockholm’s rabbit cadavers as bioenergy to warm Swedes living in Värmland doesn't sit well with Stockholm-based animal rights activists.

“Those who support the culling of rabbits surely think it’s good to use the bodies for a good cause. But it feels like they’re trying to turn the animals into an industry rather than look at the main problem,” Anna Johannesson of Vilda kaniners värn (‘Society for the Protection of Wild Rabbits’) told the local Vårt Kungsholmen newspaper... (there's more)

Colin, America produces more inventors, Nobel Prize winners, etc. because we have the Freedom to Think, not that tired "Free Market" spiel. We're not discouraged from thinking differently, and have less class and cultural pressure, to toe the line.

The dynamics of Free Markets (tariffs, subsidies, quotas, etc.) have nothing to do with brain power.

Colin, America produces more inventors, Nobel Prize winners, etc. because we have the Freedom to Think, not that tired "Free Market" spiel.

Free thinking, free people and free markets are inextricably linked. People in plenty of countries can think freely. The difference is that in the US they can more easily turn those thoughts into actions.

Samuel..I like MLPs and have invested in several, but people considering these investments need to consider several things, including tax complexity, debt levels, possible conflicts of interest between the MLP and its General Partner, regulatory climate, etc.

I agree with your basic premise that increased use of nat gas will drive increasing pipeline volumes.

While there is some free market still left we might be seeing the following...

From the Calgary Herald: Airships set for Arctic's heavy lifting...

This venture has been very disappointing so far. The juniors that I have talked to have not spoken highly of the product offered by SkyHook. Some of them thought that the Avro Canadianna approach might work better and had a bit more promise. The AVRO I-200 design is rated for 100 tonnes and should be on the market in 2011, a year after the AVRO I-40 hits the market. In the case of AVRO, the ship is towed by a helicopter. That makes it much easier to get an approved design than the Skyhook, which has an onboard power plant and propulsion systems.

On the subject of natural gas supply, I am not as positive as the reporters. If you listen to the conference calls, most of the shale wells cannot work at the current low prices. While the previous wells are still operational, their depletion rates are huge and will require new investment to get production to go up again. Given the low density of shale and the potential environmental difficulties, it is hard to get too excited about the overall prospects. That said, even if we could get much more natural gas, we still need to do something about the oil depletion issue, which seems to have been forgotten when demand crashed due to the economic collapse. To get the world economy growing we will need a lot more oil than we are producing now. Sadly, the spare capacity is almost all gone and the economics in a post-peak world encourage field optimization over a higher daily output.

Given the technical difficulties and the scarcity issues we might see the price of oil start being denominated in other currencies (and gold) rather than just USDs. if that is the case, the US energy companies better make good on their promises or the American consumer will be in serious trouble.

Are you referring to the recent news of China, Saudi Arabia, France and others talking about moving oil away from the USD and towards a basket of currencies? I know a Bloomberg report shot it down, but personally, I wonder if some scared people were doing PR damage control. It seems like the USD keeps going down the Jon.

I've looked into peak oil but not as much as others. I can honestly say I'm glad I live in NYC where I don't need a car. It's likely bad things are in store for all of us.

Are you referring to the recent news of China, Saudi Arabia, France and others talking about moving oil away from the USD and towards a basket of currencies? I know a Bloomberg report shot it down, but personally, I wonder if some scared people were doing PR damage control. It seems like the USD keeps going down the Jon.

I saw that article but believe that it was obvious what the Chinese, OPEC producers and Russians wanted to do quite some time ago. The Chinese are hedging their reserve holdings by taking advantage of low commodity company stock prices. They are taking minority stakes in producers, buying them outright, or securing long term supply deals even as they build up inventories and use long term futures contracts to assure themselves of access to essential inputs for their economy.

I also see a great deal of interest among Chinese for gold and silver. During my last visit to Xi'an and Beijing I found the department store jewellery sections selling gold pandas plus other gold products. I found it easier to pick up a gold coin in China than in Canada.

I also think that the Russians have been following the gold leasing debate for quite some time. Government officials have clearly stated that the GATA folks were right and that Greenspan was lying when he denied the government's desire to meddle in the gold markets. For Russia a move away from the USD as the primary reserve currency is seen as a very positive step that reduces risk for commodity producing nations and is clearly seen as a strategic foreign policy advancement as the US is no longer able to project power across the globe.

As the various central banks follow the investors and become net buyers rather than sellers of gold and silver we should see the dollar continue to fall. Of course, between here and there we should have a few stomach turning declines that will shake out many of the precious metals bulls out of their positions but that is a subject for another post.

I've looked into peak oil but not as much as others. I can honestly say I'm glad I live in NYC where I don't need a car. It's likely bad things are in store for all of us.

I am an optimist because I believe that we can figure out how to adjust to a post peak world. My pessimism comes from the meddling that I see in your Congress and in other developing world governments who don't seem to have a clue about the real world. Instead of encouraging more drilling to offset the depletion and new economic production capacity that would give us more time to adjust we see all kinds of barriers to progress even as governments waste scarce resources as they reward politically connected alternative energy companies that have no real solution.

I am worried that we are vulnerable to long cold snaps that could cause a great deal of harm to many people because of the lack of capacity to meet peak demand during the heating season. A worst case scenario could have many people freezing to death even as the idiots in Congress argue about funding carbon sequestration projects and worry about global warming. Hopefully we will get lucky and won't see a harsh winter. If we do see a reasonable winter, the natural gas and oil prices should remain under control and the optimists can continue to misdirect the debate for a little while longer. But if you listen to the conference calls you will find that the energy companies are not as optimistic as the press releases would have them appear.

I heard article's author on the radio a few days ago. He doesn't believe the USD will completely collapse, but America will lose much clout long term. It will be China, Russia and other countries pushing their policy with us, not us telling the world what to do. No wonder educated people have been emigrating from here.

It's funny you brought up Greenspan. Now he thinks America's big banks should be broken up.

Do you have a long term forecast for peak oil? Do you think the world will eventually pull itself out of it? I've been saying for years that America's idiotic overdependancy on cars will kill us in the end. If there's some good news to expect during peak oil, it's that yanks won't be opposing rail transit projects.

"In a report, the credit-rating firm said Spanish financial institutions weren't setting aside enough capital to cover surging bad loans. Moody's said the banks set aside less than half the €108 billion ($160 billion) in loan losses it estimates they will suffer during the course of the downturn. At the current rate they are provisioning, it would take Spanish banks five years to fully cover those losses, it said.

"We remain concerned that many banks appear to be avoiding recognizing the true scale of the asset quality deterioration in their books, which could result in the banking sector remaining weak unless this is addressed more decisively," said María Cabanyes, lead Spanish banking analyst at Moody's."

I'd argue that the "free" part of the US banking market did screw up, badly. Of course, so did the government on its own drinking of the cool-aid regarding the desirability of homeownership levels above what was sustainable. Everyone went a little nuts. CDOs are good tools for defending against random defaults on mortgages that have at least 20% downpayment. They can't defend against systematic default when large number of homeowners purchase with little or nothing down and go "underwater".

The difference is that when markets fail, they readjust. Governments rarely change policies once they are enacted, they just add more policies on top.

I heard article's author on the radio a few days ago. He doesn't believe the USD will completely collapse, but America will lose much clout long term. It will be China, Russia and other countries pushing their policy with us, not us telling the world what to do. No wonder educated people have been emigrating from here.

Higgs argues that Hoover and FDR took the wrong path by rising taxes, increasing federal spending and meddling in the economy. They took what should have been a sharp and deep correction and turned it into a Great Depression. (Keep in mind that Harding, who is considered a bad president, inherited a major contraction but took the opposite approach by cutting taxes and federal spending. The contraction was over in a year and the economy was off and running once again. That is why nobody is talking about the depression of the 1920s.)

Higgs' best point is about the corrosive effect of regime uncertainty. By going after the 'rich' FDR ensured that few people who had the capital would actually invest in productive assets that could create jobs for workers. (Why build a factory when the government will impose all kinds of conditions about wages and pricing and still tax 90% of your profit away if you are successful?)

We seem to be seeing a replay of that terrible time as Congress and the Obama Administration have began to attack those that have wealth and want to make them pay for all kinds of wealth transfer programs that they are using to buy votes among the poor and middle class. If I were an educated person living in the US and had a way out I would be looking to move elsewhere where governments treat earnings and wealth with more respect.

It's funny you brought up Greenspan. Now he thinks America's big banks should be broken up.

He is a clown who sold his soul and turned his back on his principles to get access to power.

The supply of light sweet crude has already peaked. The fact that the Saudis have spent so much on offshore oil and are now trying to rehabilitate their old, problem-laden fields should tell us a great deal. They are out of good options and are now looking to increase capacity in any way they can, even if the marginal cost of production is north of $70. Add to this the revelation that Exxon was willing to pay $100 a barrel for Ghana assets but still got outbid by the Chinese and we should have a clue about where things stand.

It is my opinion that the 2005-2008 production levels will not be exceeded for very long in the future. While it is possible to get a production spike it would come at a huge cost as reservoirs are damaged and oil is left behind by aggressive enhanced recovery methods.

Do you think the world will eventually pull itself out of it?

In my opinion, no. I think that we will have to go to substitutes. Natural gas makes some sense at $10 and above for the marginal producing areas but is not a solution over the long term unless there are newer technologies that will increase the energy return on energy invested. (This is a point the optimists keep ignoring.)

We will need nuclear and coal to step up and replace some of the energy coming from oil. Sadly, Western politicians seem to be imbeciles and keep getting in the way. Eventually we will need substitutes that makes sense. I have been looking at methane hydrates for years and have an interest in ocean energy.

I've been saying for years that America's idiotic overdependancy on cars will kill us in the end.

Perhaps. We clearly will need to adjust everywhere. But I do not believe that Europe or other places are in much better shape. While I am very negative on the US, I see the EU in even more trouble and far too dependent on Russian energy sources for my liking. While the Americans can become more efficient by cutting back on driving, turning down thermostats or changing land use regulations, the high EU taxes have already forced Europeans to make most of the hard choices so they have less room for error.

If there's some good news to expect during peak oil, it's that yanks won't be opposing rail transit projects.

The US has built rail transit projects that are massive energy losers because they do not move enough people around to justify the costs and justify the operating demands. In Phoenix, the costs of the light rail system (due to very low demand from the higher income riders it was supposed to attract) has caused the city to cut back on buses that are used by the poor.

We need to keep in mind that rail projects in the US make sense in some areas but not in many, and not if they are run by administrators that do not have an incentive to make a profit by serving customers. Americans would be better off by deregulating urban transit systems and allowing more competition that would increase services to consumers according to real market demand.

Free markets do not fail. They reward those that are capable of effectively meeting consumer demands and punish those that can't. That is the way it should be; most of the benefits accrue to the consumers and only the best producers manage to make extraordinary returns and only until the competition catches up.

Thanks for the hard but wise words on oil and money, VangeIV. It's sad to hear but probably true. It seems as if we've been drunk in both cases, giving no thought about tomorrow.

I guess you have a point about mass transit. You do need enough riders to make it work. At least NYC figured out how to make their train system work a long time ago. It might seem crappy, but it's a hell of lot better than Chicago's. I don't think the city could function without it.